Friday, 24 June 2011

A Teachable Moment

Agriculture ministers from the G20 met in Paris this week to talk about the impact of speculation on rising food prices. As so often happens the interests of various countries takes precedence over just doing the right thing. Britain and the United States are big players in global financial markets (and just how is that going anyway), so are reluctant to see limits on speculative market playing. Many other countries including France are prepared for strict limits. It's been hard to decern just where Canada stands on this, but here's a quote from one report, and I'd beet a lot that Canada is with the U.S., Australia group.

"France has made limiting speculation and reining in markets a centrepiece of its G20 presidency and said it will accept no fudges on key issues.
Paris wants changes such as limits on the participation of purely financial actors in the agricultural commodity markets.
Countries such as the United States, Britain, Australia and Brazil however are concerned that such limits could crimp futures and derivatives markets, which are increasingly vital to farmers and processors."

Just to highlight the "beliefs and values" the media bring to their reporting (hence the teachable moment) here are two that presnt vastly different takes on what went on. The first is from the Voice of America news, and the second the British Guardian newspaper (one of the best in my view).

The world's top 20 economic powers agreed Thursday on measures aimed at controlling high and volatile food prices.

Farm ministers from the G20 group of leading and emerging economies met for the first time in Paris Wednesday and Thursday. Following nearly a year of difficult negotiations, French agriculture minister Bruno Le Maire described the agreement as a remarkable accomplishment.

"It was not just based on the questions of national interest of the countries concerned. It took into account the absolute necessity to fight against world hunger and to put an end to this scandal which is world hunger for hundreds of thousands of people," he said.

The agriculture ministers called for more regulation of financial markets. Many experts say an increase in speculation in these markets has contributed to dramatic price swings in recent years. But there were few details in the agreement. G20 finance ministers will likely have more to say about this.

Farm ministers also agreed to set up a new system to share information on global food stocks and usage. World Bank President Robert Zoellick says this is a lesson learned from the previous price spike three years ago.

"What we saw -- when prices started to surge in 2008 -- was that a lack of information about stocks, about availability, can lead to panic in markets. And panic is what leads to price spikes. So uncertainty feeds volatility," he said.

The Paris agreement includes plans for small, regional emergency food reserves to be managed by the UN World Food Program. And the ministers agreed to exempt food aid from export restrictions like those imposed by Russia and other countries last year following a major drought.

A new rapid response forum is to meet when crises occur that threaten food supplies. But there is no agreement to end export bans.

Shenggen Fan, head of the International Food Policy Research Institute, says with high food prices creating global instability, it was important for the agriculture ministers to find common ground.

"They have achieved that common position. But I wanted to see more meat, more commitment, more concrete actions," Fan said.

Fan says for one thing, there was little concrete language about how to improve productivity of small farmers in the developing world, where hunger problems are greatest.

And the G20 ministers said little about the use of food crops to produce biofuels, which many experts say is a major contributor to high food prices.

"I would have rather seen some stronger language saying that we should curtail biofuel production by reducing or eliminating subsidies," Fan said.

The UN food price index has been hovering around record highs this year as bad weather has cut supplies of maize and wheat. Demand from a growing and increasingly affluent world population, as well as high energy costs and slowing global productivity gains are expected to keep prices relatively high for years to come.

The action to curb rising food prices agreed by the G20 ministers on Thursday is far weaker than aid agencies hoped and displays a predictable retreat to national interests over any real structural reform – but perhaps the most significant fact is that negotiations have taken place at all. This was the first time the agriculture ministers of the group of leading world economies have held a summit. The contribution of soaring prices to uprisings in the Arab world has reminded global leaders that without action there could be a repeat of the riots that accompanied spikes in 2008 – food inflation and political unrest have been bedfellows throughout history. But there was less agreement on causes of price rises and how to tackle them.

The case that mandates and subsidies for biofuels have contributed to price rises by diverting huge volumes of food crops to fuel is compelling and widely accepted. (Around 40% of the US corn crop now goes to petrol tanks.) Both the FAO and the World Bank have called for the G20 to stop promoting biofuels. But the two big ethanol producers, the US and Brazil, blocked agreement. American geopolitical interest lies in using its vast agricultural surplus to wean itself off Middle Eastern oil; Brazil's growth, meanwhile, is driven by its agroexports. So the biofuels issue has been kicked into the long grass of "more studies needed".

France with its big farming interests and the G20 presidency has pushed hard for an ambitious agreement that would protect producers and consumers from excessive commodities speculation and market volatility. (Banks won deregulation of commodities markets in 2000, allowing them to develop new derivative products such as commodity index funds, which offer investors a chance to track changes in a spread of commodity prices including key agricultural commodities.) There have been huge flows of capital into agricultural commodities in the last decade, and the UN rapporteur on food, Olivier de Schutter, is one of many experts along with aid agencies such as Christain Aid, Oxfam and the World Development Movement, concluding that excessive speculation has been a significant factor in food price rises and volatility.

However, the UK – whose recovery depends on its dominant financial sector – opposed deregulation of markets. The position of its coalition government's Conservative agriculture minister, Caroline Spelman, is that the evidence is inconclusive. Unable to agree, the G20 action plan ducks the issue, choosing to send it back to finance ministers and central banks to deal with as part of reform of the financial system generally. Instead, the communique on action stresses that transparency rather than new regulation is the best guarantee of efficient commodities markets. That will be seen as an ineffectual response by development campaigners.

The deal does commit to a new global agriculture market information system (Amis) so that governments can share better data about the state of food stocks and global production, but the FAO, already short of funds, will have to run it without new money. Private sector players, such as the large grain traders for whom knowledge of stocks and harvests represent a key competitive advantage, are simply "urged" to participate.

There is no deal either on giving up export bans when prices spike. Several countries stopped exports of key crops during that last food price crisis to keep the cost of staples in check at home, but added to anxiety about global supplies, and fuelled further price rises by doing so. Emerging economy governments, perhaps not surprisingly, were not keen to give up one of the few tools they have to keep the lid on urban unrest in times of food inflation. However, there is agreement that exports for humanitarian aid will not be caught up in export bans in future.

The most glaring omission from the action plan is climate change. The impact of extreme climate events has been one of the major drivers of food price volatility in the last few years. It gets just one short paragraph, two sentences long, saying the G20 supports the UN convention on climate change – that failed to make significant progress on controlling greenhouse gas emissions in Copenhagen in 2009. So although there is mention of the need for more sustainable agriculture and more responsible use of water resources, the challenge of meeting growing demand for food just when global warming impacts on agricultural productivity is reduced to little more than business as usual.

About Me

I've done little planning, but been extraordinarily lucky. New opportunities seem to appear when I got bored, or my boss got tired of me. After teaching at high school and university, and market gardening when I went "back to the land", I spent 30 years working for the CBC, most of it when CBC had the resources to do things that mattered, not the media sweatshop its become now. Again, I was the lucky one.